Elements of Value
This post introduces a new sequence about Elements of Value. It is based on Maslow’s hierarchy of needs; a version I have mentioned in passing, see What do People Want that introduces Elements of Value.
Setting Your Price
Setting your price is an art. Too high and people don’t believe it reflects the value of your offer and too low, you don’t cover your costs.
There are other things to consider besides cost and value. For example, you may introduce low price offers to prove your value, establish your reputation, etc. There are pros and cons to all of these.
However, in this post I focus on costs and value to the customer. Generally customer bears their costs unless you choose to meet them. Value, if you show it in advance, tends to support increases in your price.
Remember though, there are no set rules.
What are Costs?
Costs to the customer can massively exceed the price. There are several ways this might work. For example, you offer a course and ask your customer to purchase a text-book. You don’t have to do this, eg you could offer a copy of the book as a bonus. You might choose to supply essential texts and leave it for the customer to decide about supporting texts.
If you supply the text-book, you add its price to your costs. This expense may be so low compared with your profit on the deal, it makes little difference financially. But presented as a bonus it adds value to your offer.
Other costs are harder to assuage. If you are a coach or consultant, your customer will need to invest time in preparation for meetings. Your prospect must understand their contribution to your effectiveness in advance. Your customer’s time is valuable and a few hours’ work can add to the overall cost. You reduce this by ensuring preparatory work is relevant, provide support, etc.
If you are alert to the costs to the customer, you can manage them together and show how they contribute to the value of the offer.
What is Value?
So, the costs, whether borne by you or your client tend to hold prices down. Your prospect compares perceived costs with perceived value. They are unlikely to buy if costs outweigh value.
It is not a good idea to hide the costs to the client. The costs to the client are the contribution they make to the success of your joint enterprise.
Let’s say the cost to the client is 3 hours’ work a week. This work is essential and so the client must know about it before they buy your offer. If they are aware and do not do the work, then you can discuss what you can do together given they have already acknowledged the need for the work.
The temptation might be to reflect these costs in your prices. However, this is not a good idea for several reasons. If you cut your prices, you need more clients and these take up more time, reducing the value of your support because you have to spread it more thinly. Worse though, the costs to your clients are likely to increase with the value of your offer. A higher value offer makes greater demands on your client. If you cut prices for every increase in value, you have no incentive to develop high-end offers!
The solution is to increase the value to your clients. If the perceived value is worth the effort, they are likely to opt for your offer. If they want it enough, they will find the money.
Elements of Value
If you follow the link to the Elements of Value, you see 30 suggestions. One of them is making money. That leaves 29 other elements.
You can offer more than one Element of Value and some will be easier for you than others. Bain offers 4 levels of value and from lowest to highest, here they are:
- Functional 14
- Emotional 10
- Life Changing 5
- Social impact 1
As this is based on Maslow’s triangle, the idea is you need to meet needs at a lower level before you move to the next. So, you need to meet some of functional needs before you start on the emotional. And so on.
Perhaps you need to offer value at all four levels to make a high value offer. This suggests a belt and braces approach to life. Get the foundations in place and build the higher values on the foundations.
However, this conceals a disadvantage. It lacks vision. If you have no sense of the social impact you intend, how can you know which foundational value you need? Many people know the changes they want to see and need to work out the values they need from lower down the triangle.
This is why my listing of the 4 levels is upside-down. It is possible to build a business, see where it takes you and then decide upon social impact. But many people set out with a vision and must back-fill the other values they need to meet that vision.
This is why over the next 30 weeks I shall start with social impact and work down the triangle, exploring each level in turn. Starting from the top suggests a strategic approach. It is for those who know the change they want to see and seek the other values they need to get to their goal.
Two Final Points
First, it is possible to start lower down. Life changing goals are fine and may provide the strategic goal you need. Once you meet this goal, you may find a social impact goal appears naturally.
And for those who worry about making a profit, remember: if you want to help more people, you need to be financially successful. This is about becoming successful enough to carry out your social impact goals.
This is the first of 31 posts about Elements of Value. Make sure you don’t miss any by signing up for the offer below. Access previous posts in this sequence below:
Social impact: next – self-transcendance
Life Changing 5